After Break: Hero Fuels a 250cc bike to take on Honda

Six months after one of the country’s most celebrated joint ventures Hero Honda was dissolved, battle lines have been drawn between the former partners.

According to sources, Hero MotoCorp, the Hero Group firm which now runs what was once Hero Honda, has started work on a 250cc motorcycle to be launched by the second half of 2012, the most expensive product yet from the company’s stable.

Sources closely associated with the project said that in the last six months, the Munjals-promoted Hero MotoCorp has hired at least four senior research and development experts from Honda Motor as consultants. These Japanese consultants are working closely on the project.

As recently as May this year, Honda Motor’s wholly-owned India subsidiary — Honda Motorcycle & Scooter India (HMSI) — had launched CBR 250R, its first 250cc bike in the country. Sold at R1.5 lakh, nearly half the price of Bajaj Kawasaki Ninja 250R, the CBR 250R livened up the 250cc segment.

Even as Hero readies to take the battle to HMSI’s camp with its 250cc bike, HMSI is proceeding with plans announced earlier this year to launch a 100cc bike, pitted against Hero's flagship Splendor. The bike is expected to be showcased at the Auto Expo in January next year.

Though HMSI already sells CB Twister, a 110cc model, this will be its first step into the 100cc arena to unseat Hero as India's reigning two-wheeler maker for over a decade.

While the joint venture was on, HMSI and Hero Honda did not launch any products which overlapped with each other, as part of a mutual understanding. This also restricted Hero Honda from expanding its export base. With the JV dissolved, Hero MotoCorp gets to target new markets, while HMSI is free to launch any two-wheeler model in India.

“The company (Hero) is looking to completely revamp its existing R&D structure. So, it has recruited four Japanese officials of Honda to strategise and work closely with Hero to have its own R&D wing in place,” a source close to the company told FE.

According to the terms of the split, Honda will continue providing technology to Hero till 2014 in lieu of a royalty, while Hero is free to either form joint ventures or set up its own R&D wing for sourcing technology. At present, Hero MotoCorp has an R&D wing in Gurgaon. An email sent to Hero MotoCorp last Wednesday went unanswered.

The source quoted above added: “Hero wants to project itself as a self-sufficient firm, not heavily dependent on Honda. Consumers can expect the new bike to have Hero’s two traditional traits – it would have the newest design and would be available at a very competitive price,” the source said.

As earlier reported by FE, HMSI has already brought on board the former strategic sourcing head of Hero Honda Mukesh Malhotra who had served the company for over 10 years. Malhotra has joined HMSI as vice-president (purchase). He has been tasked with the responsibility of revamping HMSI’s sourcing base after the company decided not to rely on Hero’s existing vendors.

Said Monish Chatrath, auto analyst with consultancy Mazars India: “There is a clear urge to outdo each other. Each of the former JV partners would want to project themselves as being self-sufficient”. According to him, since consumers are moving up the value chain, the 250cc segment could become very attractive in the years ahead.

At present, the 250cc segment is dominated by HMSI’s CBR 250, which has a starting price of around Rs 1.5 lakh. Bajaj’s Kawasaki Ninja 250 R starts at Rs 3 lakh. TVS Motor also plans to launch a 250cc bike next year. Analysts peg the segment size at around 15,000 units per month, which could go up two-fold in as many years.